CHINA’S central bank said it will temporarily halt its buying of government bonds, after the benchmark yield slid to a record low this month.
The People’s Bank of China (PBOC) will suspend purchases of sovereign debt this month as the supply of the bonds has fallen short of demand, it said on Friday (Jan 10). The central bank will pick a time to resume buying depending on market conditions, it added.
Benchmark bond yields had slumped to an all-time low, driven by bets on aggressive policy easing to reignite a sluggish economy and demand for haven assets. Investors have turned to bonds amid a prolonged property crisis, weak consumption and concerns over deflation. Lower rates have in turn added to pressure on China’s currency.
Last year authorities repeatedly expressed concern about one-way buying in the bond market. In August, the PBOC sold long-dated bonds and bought short-maturity notes to cool the rally, after it began a bond-trading operation to adjust liquidity and influence the direction of yields.
China’s interest-rate discount to the US has widened to the largest on record, heaping pressure on the yuan. The currency is trading near the weak edge of its permitted band versus the US dollar, despite efforts by the PBOC to stabilise the exchange rate.
The PBOC has purchased a net one trillion yuan of sovereign notes for five straight months to December, after starting regular bond transactions with primary dealers in August.
The yield on China’s 10-year bonds rose four basis points to 1.675 per cent after the PBOC statement, the highest since December. BLOOMBERG
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